New Zealand Law Society - Omnibus financial market bill introduced

Omnibus financial market bill introduced

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Commerce and Consumer Affairs Minister Kris Faafoi has introduced the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill to Parliament.

The purpose of the bill is to enable New Zealand financial market participants to comply with international rules and therefore to continue to enter into derivatives and certain other types of financial instruments with important overseas financial entities.

The bill is an omnibus bill and amends a number of Acts.

Amendments to a number of Acts are aimed at removing impediments to compliance with foreign margin requirements for over-the-counter derivatives. The intention is to allow relevant New Zealand entities to continue to enter into certain types of derivatives with international counterparties, in order to continue to effectively hedge the foreign currency risk associated with overseas funding programmes.

The bill also establishes a new licensing regime for administrators of financial benchmarks under the Financial Markets Conduct Act 2013. This is aimed at enabling those benchmarks to be referenced in financial instruments (particularly derivatives) with important international counterparties.

New rules are being implemented across Group of Twenty (G20) countries which require parties to certain types of derivatives to exchange collateral ("margin"). These foreign rules apply to large New Zealand banks and other New Zealand entities, such as the Accident Compensation Corporation and the New Zealand Superannuation Fund, either directly or by virtue of the rules becoming expected market practice internationally.

Some features of New Zealand law impede the ability of affected entities to comply with these rules, which in the event of default require posted collateral to be immediately available to the non-defaulting counterparty. Inability to comply with these rules may impact affected New Zealand entities’ integration with international financial markets and have significant implications for New Zealand’s financial system.